Payment documents such as a negotiable instruments or other redeemable securities such as stock certificates are typically exchanged in place of hard currency to facilitate payment for the receipt of goods, services or other considerations. The use of drafts, such as checks, has served to reduce theft by facilitating a confirmation of receipt of payment through the process of endorsement and deposit, thereby verifying the transaction. In normal business activities there are a variety of events that lead to the issuance of a check or other draft creating a traceable transaction trail.
Typically, the use of payment documents such as a check requires the establishment of a relationship or account between the issuer of payment document and a brokering institution or final authenticator that serves as a broker and clearing house to receive and transfer funds. In the specific case of checks, the issuer may be considered the drawer and the brokering institution or final authenticator may be considered the bank or drawee with which the drawer has an account. Such institutions are generally part of a network of similar institutions so that a payee may present the check to any of the institutions in the network and receive payment.
Checks are normally pre-printed by commercial establishments specializing in such forms and are purchased in quantities by businesses and individuals. These checks are produced on "safety" paper having a printed pattern that is designed to physically and visually indicate whether original information is altered. Such checks are printed with a basic format that includes spaces for date, name of payee, the amount to be paid and an authorizing signature or imprint, all to be filled in by the drawer. In addition to the foregoing format, there is typically encoded a routing number that identifies the broker institution thus allowing the check to be "deposited" at any networked institution. The checks are returned to the brokering institution, with which the drawer has an account, by the network of receiving institutions.
Additionally, for the brokering institution's internal accounting purposes, the account number of the drawer and the check number may also be printed on the face of the draft or check. This printing is done at the time the check is commercially printed. This information is printed within a specific location and requires the use of special printed characters (font) using ink having magnetic properties. A drawee bank typically serves as a final authenticator of a check before releasing funds from a drawers account.
When a drawee bank receives the check, an operator must typically insert the checks into a magnetic ink reader to verify the drawee number on the check and the drawer's account number. An account maintenance process usually requires the operator to type in the amount of the check to be debited from the drawer's account and verifies the authenticity of the signature of the drawer. The manual handling of the check by the operator and the manual entry of the check amount typically becomes the bottleneck in the account maintenance process. Improperly entered check amounts and slow entry rates can drastically reduce check processing throughput.
A problem arises with such traditional payment and payment verification systems where a proper signature is present but the amount of the check has been modified and/or where a blank pre-printed check has been stolen and the drawer's signature has been accurately forged so that quick visual inspection by an operator does not identify the signature as a forgery. Furthermore, the drawee or final authenticator does not have any knowledge as to which payment documents have been properly authorized by the drawer. Also, access to the pre-printed checks requires physical transport of the checks to the proper location within an office before the pre-printed checks may be filled out by a computer or by manual operation. Yet a further problem exists because a pre-printed number sequence must be maintained manually by the drawer and may be interrupted by selecting the wrong sequence of forms. Also pre-printed forms must typically be discarded when a typographical error or other mistake has been entered on the face of the form.